(Thank you to Tim Fiero, sometime guest writer, all around great guy, and new Dad, for this update on Federal Housing Administration (FHA) lending requirements.)
As many of you may have heard, the FHA funding fee is being increased from 1.75% to 2.25% on or around April 5th. While you may hear a number of lenders whining about this, this is a win and a big one.
The alternative was higher down payments. Some of the alternatives floated out there were increasing minimum required down payments to 5% — or even 10%.
The big thing here is that FHA helps a vast number of buyers in today’s market. My estimation is that, in some markets, up to 40% of home buyers are using FHA loans to finance their purchases.
With our current, more challenging lending environment, we need FHA, and we need it to be solvent. Increasing the funding fee has minimal impact on the buyer’s monthly payments, and it is a more affordable alternative to larger down payments. Given the conditions of Fannie Mae and Freddie Mac (and who knows in what direction they are heading), the fact that FHA is holding the line on the 3 1/2 down payment requirements, even at the expense of an increased funding fee, is very good news.